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Time‐Varying Spot and Futures Oil Price Dynamics
Author(s) -
Caporale Guglielmo Maria,
Ciferri Davide,
Girardi Alessandro
Publication year - 2014
Publication title -
scottish journal of political economy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.4
H-Index - 46
eISSN - 1467-9485
pISSN - 0036-9292
DOI - 10.1111/sjpe.12035
Subject(s) - futures contract , spot contract , crude oil , economics , price discovery , financial economics , oil price , normal backwardation , spot market , econometrics , oil storage trade , monetary economics , engineering , electricity , electrical engineering , petroleum engineering
In this paper, we investigate the role of crude oil spot and futures prices in the process of price discovery by using daily data over the period from January 1992 to September 2012. We provide evidence that futures markets play a more important role than spot markets, but their relative contributions turn out to be highly unstable, especially for the most deferred contracts. Furthermore, considering the time‐varying dynamics provides evidence of a smaller role for futures markets and a greater role for fundamental factors in driving oil prices during the global financial turmoil of 2007–2008. The implications of the main results for hedging and forecasting crude oil spot prices are also discussed.